Facebook Tanks in After-Hours Trading; CFO Warns of Regulatory Headwinds

Facebook's fourth-quarter earnings and revenue topped expectations, but it also reported growing expenses and shrinking margins. Facebook also cautioned that investors will see more impact from regulations this year.
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Facebook shares were nosediving in after-hours trading on Wednesday, despite solid revenue and earnings results for the fourth quarter. 

The tech giant topped revenue and bottom-line forecasts, posting earnings of $2.56 per share on $21.08 billion in revenue, compared to consensus estimates of $2.52 EPS and $20.88 in revenue for the December quarter. Facebook  (FB) - Get Report shares were down 7.6% in the minutes following the release. 

"We had a good quarter and a strong end to the year as our community and business continue to grow," said Facebook CEO Mark Zuckerberg in a statement. "We remain focused on building services that help people stay connected to those they care about."

Facebook disclosed an increase in expenses last quarter, reporting $12.22 billion in total quarterly costs and expenses compared to $9.1 billion at the same time last year. Its operating margin also contracted, at 42% versus 46% in the year-ago quarter. For the full year 2019, expenses were $46.71 billion, up 51% compared to its total of $30.92 billion in 2018. Its operating margin for full year 2019 was 34% compared to 45% in 2018.

Prior to Wednesday's release, Facebook had extended last year's gains throughout January. Its stock is up 6.4% so far this year, and ahead of earnings on Wednesday, Raymond James upgraded Facebook's stock to strong buy and raised its price target to $270 per share.

Facebook's user counts were in line with expectations, at 2.5 billion monthly active users (up 8% year over year) and 1.66 billion daily actives (up 9%).  

On its shareholder call, Facebook CFO Dave Wehner also cautioned that investors may see revenue deceleration in Q1 owing in part to the "increasing impact from global privacy regulations and ad targeting related headwinds." He said that Facebook's revenue growth rate may decelerate by a low-to-mid single digit percentage point next quarter. 

"While we have experienced some modest impact from these headwinds to date, the majority of the impact lies in front of us," Wehner said. 

The broader markets ended mixed Wednesday ahead of Facebook's results. The Dow Jones Industrial Average rose 12 points, or 0.4%, to 28,734. The S&P 500 index fell 2.84, or 0.1%, to 3273.40. The Nasdaq gained 5.48, or 0.06%, to 9,275.16.